Surge in complaints against FMCG firms over GST rate cut benefits

The surge in complaints hints at the challenges faced by FMCG firms in ensuring that prices of all products are reduced in line with GST rate cuts and rebates on inputs

New Delhi: The National Anti-profiteering Authority (NAA), the body tasked with ensuring that businesses pass on benefits of GST rate cuts to consumers, is witnessing a surge in complaints relating to overcharging by fast moving consumer goods (FMCG) companies. The GST anti-profiteering authority had received more than 300 complaints from customers in recent weeks about firms not passing on to them the full benefit of GST rate cuts on handwashes, deodorants, scented oils and cosmetics, two people familiar with the development said.

The surge in complaints hints at the challenges faced by manufacturers in ensuring that prices of all products in their portfolio are reduced in line with GST rate cuts and rebates on inputs.

The complaints received by NAA, as well as its state-level screening panels, cover a large number of consumer items, including khadi products, baby wash, disinfectant gels and haircare products, one of the two people cited above said on condition of anonymity.

NAA is expected to come out with orders on many of the items over the next three months, said the person. The Directorate General of Anti-profiteering investigates complaints and NAA adjudicates on cases. Once a probe is completed, NAA has a maximum of three months to give its ruling. In many cases, the hearings were at an advanced stage, said the person.

The anti-profiteering watchdog was set up in November last year, nearly five months after the goods and services tax (GST) was implemented on 1 July 2017. In recent months, NAA and the tax administration have stepped up efforts to make sure that customers get the benefit of GST rate cuts. NAA accepts customer complaints through its website and has a helpline for consumers.

Experts said that unlike several other industries, the FMCG sector has a very long supply chain, starting with the manufacturer and covering distributors, wholesalers, super stockists and then retailers. This makes it virtually impossible for businesses to enforce a price change across the entire chain when a tax cut is announced on a given day, said M.S. Mani, partner, Deloitte India.

“In the FMCG sector, any failure to pass on the benefit of tax cuts to consumer is not driven by an intention to evade taxes, as these companies hold their reputation dear,” said Mani. FMCG products of individual companies go to as many as 500,000 retail outlets.

The GST Council had made large-scale tax cuts in November last year on items such as shampoo, cosmetics, hair oil and groceries from 28% to 18% and in July this year from 28% to 18% on refrigerators, washing machines, small televisions and vacuum cleaners. For the authorities, it is important to make sure that consumers experience a price reduction after the rollout of GST.

Industry observers said the extent of profiteering or failure to comply due to technical reasons was widespread, considering customer response to surveys. “Compliance in passing on benefits of tax cuts to consumers was initially poor after last November’s tax cuts. That, however, is now changing with time and the efforts of the authorities,” said Sachin Taparia, founder and chairman of LocalCircles, an online community and social platform used by government departments to engage with consumers. “But as far as tax cuts announced in July this year are concerned, the pricing behaviour of businesses and traders leaves a lot to be desired,” he said.

According to a LocalCircles poll in October, 49% of more than 7,800 people who answered a question on customer experience said that benefits of last November’s GST rate cuts had not been passed on to them. The poll said that only 5% believed they got the full benefit of the tax cuts, while 17% said they received a partial benefit and 29% could not comment.

Customer perception regarding the July tax cuts improved marginally, with 7% of respondents confirming receipt of full benefits and 47% claiming they did not get the benefits.